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Software Stocks to Report Earnings on Jul 19: MSFT, MANH

Zacks Equity Research

As Q2 earnings take center stage this week, Technology is likely to be in the limelight with major Software companies scheduled to report their financial results.

As of Friday, Jul 15, we saw Q2 results from 36 S&P 500 members that together account for 10.1% of the index’s total market capitalization. Total earnings for these members are down 3.9% from the same period last year on 0.1% lower revenues, with 66.7% beating EPS estimates and 41.7% coming ahead of top-line expectations.

Just like the other sectors, Technology too will be impacted by global growth concerns, a strengthening dollar and volatility. Further, the Brexit fallout also adds to our concerns. Total earnings in the tech sector are expected to be down 6.2% on 2.7% higher revenues, which would follow the sector’s 4.5% earnings decline on 0.4% higher revenues in Q1. Excluding Apple, the Tech sector’s Q2 earnings would be down only 0.6%.

However, Software will remain attractive because it is hard to commoditize Technology and easy to patent. Moreover, it is the foundation for the ongoing revolution in computing, security, networking and ecommerce among other things, keeping investors’ interest in the sector alive. 

Among the companies slated to report this week, let’s see what’s in store for these two major Software stocks. Both are scheduled to release their earnings numbers on Tuesday, Jul 19.

Microsoft Corporation MSFT

Microsoft, a leading software company, will report fiscal fourth-quarter 2016 earnings after the bell.

Last quarter, the company recorded a negative earnings surprise of 1.59%. However, Microsoft outperformed the Zacks Consensus Estimate in each of the trailing three quarters, with an average positive surprise of 9.42%.

Notably, our proven model does not conclusively show that Microsoft is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below:

The Earnings ESP for Microsoft is -1.72%. This is because the Most Accurate estimate stands at 57 cents while the Zacks Consensus Estimate is pegged higher at 58 cents. Meanwhile, the company has a Zacks Rank #3, which increases the predictive power of ESP. However, the company's negative ESP makes surprise prediction difficult.

MICROSOFT CORP Price and EPS Surprise

MICROSOFT CORP Price and EPS Surprise | MICROSOFT CORP Quote

Microsoft is one of the best positioned to benefit from cloud computing. Not only does it continue to pull users to its services through Office 365, it also offers cloud infrastructure services to help enterprises transition to the cloud. Microsoft should report a moderate quarter with stable productivity solutions and cloud businesses, slightly offset by the evolving more personal computing business (Read more: Microsoft Earnings Preview: Expect Moderate Q4).

Manhattan Associates, Inc. MANH

Manhattan Associates will report its second-quarter 2016 earnings after the bell.

Last quarter, the company recorded a positive earnings surprise of 2.70%. Also Manhattan Associates outperformed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 10.08%.

For the current quarter, Manhattan Associates has an Earnings ESP of +0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 41 cents. It currently carries a Zacks Rank #4. So, we can’t say whether the company will beat estimates this time around. In fact, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement.

MANHATTAN ASOC Price and EPS Surprise

MANHATTAN ASOC Price and EPS Surprise | MANHATTAN ASOC Quote

Some other technology companies reporting this week are Advanced Micro Devices AMD, Intel INTC and eBay Inc. EBAY and Yahoo YHOO.

Stay tuned! Check back on our full write-up on earnings releases of these stocks.

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